Assets Types of assets

1. 1
Selecting the Right Investment
Products for Investors – Types of Assets

2. 2
Financial and Physical Assets
• Physical Assets
• Physical assets have a physical and material form , Example - Gold
and Real Estate , Investor can TOUCH and FEEL.
• Return in the form of appreciation over time
• Preferred by investors due their tangible nature
• Exposed to hazards such as fire, theft or floods

3. 3
• Financial Assets
• Financial Assets involve investing money for some cash flows in the
future
• Does not have a tangible form
• Example - Bank deposits, company deposits, equity shares,
government saving instruments, bonds and debentures
• Protected from physical harm
• Help in financing the economic activity
• Encouraged by government over physical assets
Financial and Physical Assets

4. 4
• Individuals can invest in physical assets e.g. Gold & Real Estate
• Investors can invest in gold
• In physical form ( risks of loss, locker rent)
• Through Gold ETF (open-ended, can be held indefinitely)
• Through Gold Futures ( max. 3 month holding & risk of high
leveraging)
• Through gold deposit schemes offered by some banks
• Wealth tax applicable on gold held in physical form where as NO wealth
tax payable on MF schemes or bank deposit schemes
• Nomination facility to investors, not available in physical gold
Physical Assets

5. 5
Real Estate – Physical or Financial?
• Physical real estate
• exposed to risk of loss due to fire
• Big ticket size – large amount required for investment
• Difficult to maintain diverse portfolio, risk of concentration
• Vacant land can be encroached upon
• Real estate is illiquid & unregulated market ,no transparent price
• Stamp duty & registration charges high
• Lessee may not vacate or pay rent
Physical / Financial Assets

6. 6
• Real Estate MFs (Financial) are preferred because of
• Flexible ticket sizes
• Professional managers can manage real estate risks
• Real estate mutual funds invest in
• Shares of real estate companies
• Debt papers of real estate companies
shares /debentures /securitized paper of housing finance
companies
• Buy real estate physical properties
Physical Assets

7. 7
Fixed Deposit or Debt Scheme
• Bank Deposits
• Offer insurance only up to Rs 1 lac
• Depositor can prematurely close deposit with some penalty
• Mutual Fund Debt Schemes better in following ways
• MF Schemes may give higher returns sometimes. Even G-sec gave
15 % - 20 % return when interest rates has fallen in past.
• Bank deposit interest is subject to annual income tax whereas no tax
on year to year accretions in MF
• Facility to switch across various MF Schemes, no such facility in bank
deposits
Financial Assets

8. 8
• Public Provident Fund
• 15-year product
• Risk-free government obligation
• Open to individuals and HUFs
• Offers tax-free interest of 8% p.a. and contribution up to Rs. 70,000 (min
Rs. 500) are eligible for deduction under section 80C
• Option to withdraw 50% of 4th year balance in the 7th year
• Restriction on withdrawal reduces liquidity.

9. 9
• RBI Relief Bonds
• Issued by RBI on behalf of the Government of India
• A 5-year investment product with 8% interest offering
• Interest is currently taxable (used to be Income tax-free earlier)
• Free of risk of default ( Soverign Debt )

10. 10
• Government Securities
• Long-term government paper
• Low-return and define the benchmark rate of return on the yield curve
Risk free government Obligation
• Specially appointed Primary dealers deal in G-Secs
• Generally high ticket investments
• Best accessible to small investors through mutual funds

11. 11
• New Pension Scheme
• Pension Funds Regulatory and Development Authority(PFRDA) is
regulator for this Scheme
• Two kinds of pension accounts are envisaged :
• Tier I ( Pension account ) is non withdrawable
• Tier II ( Savings account ) is withdrawable to meet financial
contingencies
Financial Assets

12. 12
• Tier II account can be opened only if you have an active Tier I account
• Investors can invest through Points of Presence (POP)
• Investors can allocate their investment in 3 kinds of portfolios
• Asset Class E (EQUITY)
• Asset Class C (Corporate Bonds)
• Asset Class G (Govt. Sec)
Financial Assets

13. 13
• Asset Class E –Investment in predominantly in equity market
instruments
• Asset Class C –Investment in Debt securities other than Government
Securities
• Asset Class G – Investments in Government Securities
• Investors can opt for life-cycle fund. In this fund, system decides on a
mix of investments in 3 asset classes, based on age of the investor
• 3 asset class options are managed by 6 Pension Fund
Managers(PFMs).The investors’ moneys can thus be distributed among
3 portfolios x 6 PFMs =18 alternatives
• NPS offers fewer portfolio choices than MFs but gives convenience of a
single Permanent Retirement Account Number(PRAN) which is
applicable across all PFMs
• POPs offer service for any PFM
Financial Assets

14. 14
LIFE INSURANCE PRODUCT
• Premium qualify for deduction under section 80C ( Up to rs 1 lakh )
• Important to assess need for life insurance with respect to earning
Potential
• In case a policy is discontinued during its tenure, the policy’s surrender
value is paid which is a proportionate value based on premiums paid so
• A ‘convergence’ of insurance and mutual funds is the development of
Unit-Linked Insurance products – which offers investors choice of asset
allocation between debt and equity.
• The Amount an insurance company pays to the nominee if a policyholder
dies is known as the SUM ASSURED

15. 15
Selection of Right Product
• A comparison of investment products can be done on risk, return,
volatility and liquidity
• Mutual funds combine the advantages of all investment vehicles while
doing away with their shortcomings
• The returns in a mutual fund are adjusted for market movements.
• In India, Individual Investors does not direct access to Money Market
Instruments.
• The biggest advantage of Investment in Gold is hedge against inflation
• The advantage of bank deposits is liquidity, high perceived safety and low
entry price. ITS disadvantage is low Yield after TAX.

16. 16
Q-1: RBI relief bonds have the maturity of
(a) 3 years
(b) 5 years
(c) 7 years
(d) 10 years
Quetions

17. 17
Q-2: Which of the following is not the advantage of bank fixed deposits?
(a) Safety
(b) Liquidity
(c) Lower entry price
(d) High yield
Quetions

18. 18
Q-3: In new pension scheme(NPS) Tier I account new pension scheme is
called pension account
(a) True
(b) False
Quetions

19. 19
Q-4: New Pension Scheme is regulated by
(a) PFRDA
(b) IRDA
(c) PFRDA + IRDA
(d) None of these
Quetions

20. 20
Q-5: Real Estate mutual fund is
(a) Beyond means of retail investor's
(b) Provided benefits of real estate & MF investing
(c) Are popular investment options
(d) Are not easy to liquidate
Quetions

21. 21
Q-6: STCG in GOLD is applicable if the holding period is less than
(a) 12months
(b) 36 months
(c) 6 months
(d) 9 months
Quetions

22. 22
Q-7: In NPS class-C predominantly invests in
(a) Equity
(b) Debt
(c) Gold
(d) Real Estate
Quetions

23. 23
Q-8: What is the current PPF Rate ?
(a) 8%
(b) 8.50%
(c) 7.75%
(d) 8.80%

24. 24
Q-9: Which of the following is a financial asset ?
(a) Govt Security
(b) Gold
(c) Real Estate
(d) None of the above
Quetions

25. 25
Q-10: NCDEX refers to
(a) National Contract Exchange
(b) National Currency Exchange
(c) National Commodity Exchange
(d) National Conversion Exchange
Quetions

26. 26
Q.11: Which of the following account in nps is savings Account
(a) Tier 1
(b) Tier 2
(c) Tier 3
(d) Tier 4
Quetions

27. 27
Q.12: Which is true in case of PPF
(a) Partial withdrawal facility available after one year
(b) investment return both are tax free
(c) Both
(d) None of the above
Quetions

28. 28
Q.13: Asset class E in NPS invests in
(a) Equity
(b) Corporate Debt
(c) Both
(d) Govt. Debt
Quetions

29. 29
Q.14: Companies issuing short term debt is called
(a) CD
(b) T bills
(c) Debentures
(D) CP
Quetions

30. 30
Q.15: Which of the following is a Financial asset?
(a) Govt. Security
(b) Real Estate
(c) Gold
(d) None of the above
Quetions

31. 31
A-1 : (b)
A-2 : (d)
A-3 : (a)
A-4 : (a)
A-5 : (b)
A-6 : (b)
A-7 : (b)
A-8 : (d)
A-9 : (a)
A-10: (c)
A-11: (b)
A-12: (b)
Answers for Revision
A-13 : (a)
A-14 : (d)
A-15 : (a)